Mortgages For The Self Employed

Even though you may earn more than the average employed person, being self employed means the process of getting a mortgage can be difficult and frustrating. Fortunately, our independent team of mortgage brokers can ensure that you tick all the boxes before submitting your application.

The abolition of self cert mortgages following the credit crunch closed a loophole which allowed the self employed to invent an income to suit the property they intended to buy.

Naturally banks became far more cautious about lending to anyone they regarded as higher risk and this continues to be the case today. While getting a mortgage can be difficult in the current climate it is not impossible.

As long as you are able to prove you have sufficient income, provide evidence of your net profit and have a good clean credit file it is perfectly possible to secure the mortgage you need.

What your mortgage lender requires if you are self employed

As we have established the burden rests on you to provide proof of your income and lenders will go over everything to make sure they are happy to grant you a mortgage.

The main documentation and qualifying criteria you will need are as follows:

  • A strong track record of regular work.
  • Ideally 2 years of accounts prepared ideally by a certified or chartered accountant. Lenders look more favourably on accounts prepared by someone qualified.
  • Sufficient funds to put down a deposit which is normally at least 10% of the value of the property you wish to purchase.
  • A strong credit history

Stability and consistent income are key to getting a mortgage when you are self employed and this isn’t always possible when you are self employed.

If you have had a few years when income hasn’t been great, don’t worry too much, lenders will take an average of the information you provide which can make up for any lean periods you may have experienced being self employed or working as a freelancer.

If all this sounds daunting, don’t worry, we can guide you through the entire process and ensure you paperwork is all in order before submitting your application.

What self- employed people should avoid when applying for a mortgage

  • Don’t try to minimise your income to pay less tax. What you save in tax could count against you when you apply for a mortgage and income is seen as insufficient.
  • Don’t try to do your accounts yourself. Lenders prefer you to use a certified or chartered accountant.
  • Don’t assume that getting a mortgage is impossible. There are plenty of options out there and using a whole of market mortgage broker will help you find the best products.

What Is A Self-Employed Mortgage?

Contrary to popular belief, ​self-employed people​ can get a ​mortgage​ just like everyone else. If you’re self-employed, you have access to the same range of competitive mortgages and interest rates as applicants in full-time employment. You just have to ​tick certain boxes​ to verify your income to lenders and reassure them that you can repay your mortgage, that’s all.

There are mortgage lenders out there who specialise in dealing with self-employed people. However, many mainstream lenders regularly lend to self-employed people anyway.

There’s actually no such thing as a “self-employed mortgage.” In the past, self-employed people could get a ​self-certification mortgage​, which allowed you to state your income without actually providing the documentation to prove it. However, these were discontinued in the UK in 2011 following the ​2008 financial crash​.

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What Information Do You Need To Provide To Lenders?

In addition to the ​standard requirements​ like identification, a utility bill (for proof of address) and a deposit, self-employed people have to provide lenders with certain information that other applications don’t in order to verify their income.

Different mortgage lenders may ask for different things from self-employed applicants. However, you’ll generally need to provide the following:

  • 2 to 3 years’ worth of accounts​ — Lenders will typically only accept accounts that have been certified by a chartered accountant. However, mortgage lenders who specialise in dealing with self-employed people may only ask for 1 to 2 years’ worth of accounts.
  • SA302s ​– An ​SA302​ is a form you receive from ​HMRC​ after you’ve submitted your self assessment tax return. It shows your total income for that given tax year, as well as how much tax you owe. Most lenders will ask to see SA302s for the past 2 to 3 years.
  • Tax Year Overview ​– This form, which you can print out via your HMRC online account, verifies that the information provided on your SA302 is correct. Most lenders will ask to see ​Tax Year Overviews​ for the past 2 to 3 years.


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How Do Mortgage Lenders Assess Your Income?

Once a mortgage lender has received the documentation above and are able to verify your income, they then calculate your ​mortgage affordability​. In other words, they figure out how much money they can loan you based on your earnings.

Lenders will typically assess your income in one of the following ways:

  • Average income​ — Lenders will look at your last 2 to 3 years’ worth of earnings and calculate an average in come. For example, if you earned £20,000 in year one, £25,000 in year two and £30,000 in year three, your average income will be £25,000.
  • Lowest or Recent Year ​– Some lenders might base your mortgage affordability on your lowest-earning year or your most recent year, especially if your income drastically varies from year to year. However, this could reduce the amount of money you can borrow.
  • Limited Company​ — If you operate your self-employed business as a ​limited company​ (where your personal bank account is separate from your business bank accounts), a lender might take your personal salary, your dividends or your retained profits in the company.


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How To Improve Your Chances Of Getting A Self-Employed Mortgage

  • Use an accountant​ — Some lenders won’t consider your application unless your accounts have been signed off by a ​certified or chartered accountant​. However, it’s worth noting that while accountants help you to minimise your declared income so you pay less tax, this can have an adverse effect when applying for a mortgage.
  • Provide as much documentation as you can​ — The more information you provide to a lender, the better. In addition to your past earnings, showing evidence of repeat business or work that you have lined up in the future can help to reassure a lender that you can afford to meet your mortgage repayments.
  • Put down a bigger deposit — ​As with any mortgage application, the bigger the deposit you put down, the more likely you are to get approved and the lower interest rates you will be offered.
  • Get your finances in order — ​Be organised, have all the necessary paperwork ready for lenders to look at, resolve any outstanding debts, limit your outgoings in the run up to getting a mortgage (these will be assessed by lenders when calculating your mortgage affordability) and improve your ​credit score​.

How We Can Help If You’re Looking For A Self-Employed Mortgage

As you can see, the process of securing a mortgage as a self-employed person is not impossible, but it can be slightly more complex compared to if you were in full-time employment. Every lender is different when it comes to self-employed applicants and there are many scenarios that can make applying for a mortgage a bit trickier — for example, if the status of your company has recently changed or you’ve switched between full-time employment and self-employment.

As a self-employed individual, it’s important that you speak to the experts before applying for a mortgage. At ​Huxley Mortgage Services​, our friendly, professional and experienced financial advisors can help you to find a lender that will cater to your specific situation and secure the best possible mortgage deals for you. We’re Cheshire mortgage brokers who pride ourselves on providing an excellent service and guiding our customers through the entire process, making it as as stress-free as possible.

If you’re looking for a self-employed mortgage in Chester, ​get in touch with us today.

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